Answering a Practical Problem in UPSC

Commerce for IAS – Answering a Practical Problem in UPSC

UPSC IAS Commerce Paper 1 is full of Practical Problems which can be high scoring if properly attempted. Hence, it is important to understand how to attempt any Practical Problem.

THE KEY MANTRA FOR SOLVING UPSC/IAS COMMERCE PRACTICAL PROBLEMS IS:

Solution to any Practical Problem should be provided in precise & clear-cut manner. Use of Tables is not only time saving but also marks rewarding. Instead of directly jumping to the answer, it is advisable to write 1 or 2 lines about the concept involved in the question.

An ideal solution may be as follows:

Practical Illustration:

Illustration I

From the following particulars calculate the cost of Job No.505 and price for the job to give a profit of 25% on the selling price.

Material : Rs. 6820

Wage details: Department wise:

X : 60 hrs @ Rs. 3 per hr Y : 50 hrs @ Rs. 3 per hr Z : 30 hrs @ Rs. 5 per hr

The variable Overheads are as follows: Department wise:

X : Rs. 5000 for 5000 hrs Y : Rs. 4000 for 2000 hrs Z : Rs. 2000 for 500 hrs.

The total fixed expenses amounted to Rs. 20,000 for 10,000 working hours.

Calculate the cost of Job No. 505 and price for the job to give a profit of 25% on selling price.

Solution

The question pertains to Job Costing – A popular method of costing used in Job Order Industries.

The cost of completed job will be the materials used for the job, the direct labor employed for the same and the production overheads and other overheads if any charged to the job.

Based on the given problem:

ParticularsWorkingAmount (Rs.)
Direct Material 6820
WagesDeptt X – 60*3180
 Deptt Y – 50*3150
 Deptt Z – 30*5150
Variable OverheadDeptt X – 60*160
 Deptt Y – 50*2100
 Deptt Z – 30*4120
Fixed OverheadTotal Hrs (140) * Absorption Rate (2/-)280
( Absorbed @ 2/- per hr)  
Total Cost 7860 (A)
Profit Margin25% on sales or 1/3rd of Cost2620 (B)
Selling Price 10480 (A)+(B)

Hence, the selling price should be Rs. 10,840 /-